Selling Food to China can be Childs Play Part 7 - A Presence in the Market

In part 7 of the Anderen series “Selling Food to China can be Childs' Play” we look at the various options for having an ongoing presence in the market.

If you have followed our suggested route to selling food to China, you will already have done much of the hard work. Your product will be compliant and market ready, you will have engaged with the possible buyers and you will have generated consumer interest.

Now it is important to establish constant contact and that means having a real presence in China.

First let us look at the obvious challenges China is effectively a working day ahead of the UK - so making a call can mean an early start for you. You may have some language difficulty – will you understand the person at the other end – will their English or your Chinese be good enough to have a serious conversation?. Remember that whilst English is seen as the international business language and many people in China speak English, there is a difference between getting by in a basic conversation and having a formal business discussion. It is important that you not only understand the words being said but also what is meant and understood by both sides. We all remember the childrens' party game "Chinese Whispers" and what happens between the first message that is said and the final one. In business discussions in China the game can become a reality.

The same applies using Skype, or any other VOIP system, but additionally you can often have line problems which makes voice calls erratic – hardly conducive to doing business. This is especially the case when you hit the end of the working day in China. Millions of users suddenly get on line which has a huge effect on line speed - It can drop to a few kB/second and often contact gets lost. You can of course use email but again you have language and understanding issues and an email, good though it is, does not replace having a direct contact

You could and should make regular trips to the market – these carry a high cost and the same language challenges are still there. And ask yourself how much can you achieve in a relatively short visit. Typically, in China, you may get a couple of meetings in in a day, especially in a big city where the logistics of moving around are hampered by heavy traffic. Meetings invariably take longer than you may expect and so managing your expectations can prove difficult. That said, business in China is all about building relationships and demonstrating a commitment to the market. A European senior manager attending a meeting creates a huge amount of kudos, even if he or she simply sits in a meeting and says very little - a presence is vital.

These are some of the very basic challenges that you need to overcome, but they are the start of a steep learning curve that can only be dealt with by having a constant presence in the market. This needs a strategy and you need to have a vision of what you want to achieve and the best way to achieve it. As we have discussed in earlier chapters of this series, there is no single way . A presence in the market is just another piece of a complex puzzle.

So let us have a look at some of the basic options . Probably the most common thing we hear from companies who are new to the market is that at the top of their wish list is "to get an AGENT". Agencies work because they cost little to a manufacturer and it means you have someone on the ground, but it is important to evaluate the capabilities and motivation of an agent in China.

Finding an agent in China is usually pretty easy – there are lots of people offering their services- if you are at an exhibition, it is likely that during a show you will be visited by a wide variety of people who want to be your agent. The same applies to social media and direct approaches by email. However there is a big BUT.

Whilst finding an agent is easy, finding a good one and, more importantly, the right one, is much more difficult.

From personal experience, this is a lesson I learned the hard way when I started out in China. In the first year I had three agents. On the face of it they were all apparently highly qualified but in the end we quickly realized they were either useless or "chancers". As we cast off one we had to start again with the new one. It was one of those mistakes we made that we learned from that helped us to build our understanding of how to do business in China. We effectively lost a year because we took the wrong path.

We are not saying that agents will never be a good option, but you need some due diligence. First find out if you will be working with a real company or someone working out of their bedroom. This is not as easy as it appears - getting information on companies or individuals in China is difficult, and there have been cases where searching is in breach of Chinese Law. There is for example no Chinese version of Companies House. But in fairness many UK based agents will not be registered as Limited companies and yet they can still do a great job.

Take time to find out about them. The old saying "marry in haste, repent at leisure" could have been written about agency agreements. We see time and time again people going for the first guy who comes along, with the usual outcome being failure!

Experience shows that in practice you will have little or no control over what an agent will do on your behalf and managing them remotely is far from easy. This can be really frustrating if you are paying some fees.You send money to cover expenses, but then find that getting regular, accurate feedback can be almost impossible, as can getting proper accounts. If you wouldn't accept this from a European agent then don't accept it in China. It is important not to get sucked in to the "Chinese business culture is so different" idea. It is true it is different, but fiscal prudence is the same all over the world.

Remember also that an agent is a formal representative of your company and so you need to ensure that they abide by regulations, especially regarding situations that could be seen to be corruption by either the UK or Chinese Governments. You could be liable if they break the law

Looking at selecting an agent, it may seem like a good idea to select one with lots of clients and a wide portfolio of products. This can be effective, especially if you get some feedback from some of their other clients, although you need to be selective on what you believe (another lesson I learned).

One question you should establish is where will you be placed in their business card/client league? If an agent represents say 10 clients, will you be the primary company they talk about in meetings or will you be an also ran. From experience, typically when you accompany an agent to meetings, you will be number one, but what happens when you leave. Usually they simply shuffle the pack and you end up being moved down the card wallet pockets. What happens then is that they have a meeting to discuss someone elses product and then, as an aside, ask if the buyer might be interested in any of the others.

This brings us to loyalty. If an agent can only make money from commissions, then that is where his loyalty lies. If he has to work hard to develop your business before he can get a return on that investment, you could be in trouble. Typically an agent wants to see a return inside three months otherwise he will move on.– this really is no time at all to develop a market for you. It also means you are back to square one if he leaves. In fairness to agents, he should expect that you will be supportive with your own investment in marketing collateral. If you expect him to take all the risk even the best agent is likely to lose interest.

"Reach"is another aspect to consider. Can the agent access the regions and sectors that you are interested in. China is obviously a huge country. Very few agents can cover it all, no matter what they say. Most have limited geographical reach unless they are working in niche markets that are found in clusters in China. Reach also relates to the market sectors that they work in. Food covers a wide range of potential sectors, from a corner shop to a huge supermarket and also a wider range to include hospitality, airlines, department stores and franchise stores. Few agents - if any - will cover the whole spectrum. This is not a problem if you are very niche. So for example if you produce snack food aimed only at the airline industry only, then an agent, who works in that industry could be perfect for you. But few food companies would want to be so restricted

The one thing to shy away from is anyone asking for an exclusive agency agreement, no matter what their credentials are. International Agency Law is complex and having exclusive agreements is something to be approached with extreme caution. You could find yourself stuck with someone who is worse than useless. The "worse" part is that if you set on another agent, you could easily have to pay the first one commission for many years.

A better way is to have a distributor.

Firstly he will buy, promote and distribute your product. You get paid up front, so this means that he has a vested interest in selling for you. Good distributors are all looking for new products but the better ones are usually selective. They want market ready products from manufacturers who are serious about the market. You have to show that you will support them or, since they have a huge amount of choice these days, they will move on. It is unusual for a company new to the market to be in the driving seat when you start. It is a case of "who needs whom" most. However if you have developed brand recognition and market demand the dynamic can swing in your favour

You need to establish first if the distributor is actually able to import into China. This sounds an odd thing to say, but Chinese law is different than in the UK where almost anyone can import goods. In China companies need to have formal import rights. If they don't, then they cannot import goods so they become another link further down what can be a long chain between you and the consumer. With this also comes the ability to pay in hard currency. You cannot be paid in RMB because at the moment it is not easily converted and so you need someone who can pay in GBP/USD. These are two simple questions that will not cause offence when asked

Again we have the issue of "reach" – our experience is that no matter what people tell you, it is rare for any single distributor to be able to effectively cover the whole of China.

The bigger ones can usually cover one or more adjacent provinces, but many are restricted to only the city where they are based.

Associated with reach is sector. Most distributors specialise in specific sectors.

Just as with agents, your product may be suitable for more than one of these, so it is best not to restrict yourself to a single dealer unless you are really sector specific

Also, it is worth remembering that any agent or distributor is unlikely to be 100% successful with every possible outlet in a single sector. Do you completely dominate your market at home or are their buyers who choose one of your competitors?

This brings us to a system that we believe offers the best option for a company starting out in China – the Anderen Managed Distributor Network Programme.

Through our partner Food2China we have a database of over 100,000 professional qualified Chinese buyers. These are a mix of B2C outlets, dealers and some agents. They cover the whole country and all sectors. We find those that are best suited to your wants and needs and we can manage them for you. You have a single point of contact, making it easy for you to ensure that you understand what is happening with your product. You will talk to English speakers who are technically fluent and also have a vested interest in making your business successful. We ensure that there are no square pegs in round holes, and the system meets the challenges of both region and sector reach.

One key benefit to all this is that you are not putting all your "proverbial"eggs in one basket. If something doesn’t work out with one dealer, you don’t have to start the whole process over again from the beginning, meaning that you have much greater control over the risk

Last but not least, no article on presence in China would be complete without a mention of the rise of E-Commerce. Here we will give just a brief outline of the current situation but will deal with it in greater detail in a separate chapter

Online sales of food are growing rapidly with some of China’s big on line players developing platforms that deal with the complete B2C process. They have an increasing reach with web access in China now hitting well over 600 million users. But as usual there are some considerations. Online is not always the panacea we would hope for. There are millions of products on line and so, to be successful, you need to have developed brand awareness and also sustainable,market demand. E-commerce sites are really mostly interested in fast moving lines and, with food especially, products that have a long shelf life and are easy to store - that said milk sales on line are booming.

There is though one big consideration which is who is in control. The big Chinese players, work in the same way that their western counterparts do. They exert increasing pressure and control over suppliers. They offer a great service to consumers but they are profit driven and have many ways to generate income from manufacturers. This can become a bit of a Catch 22 situation - You either go with it and hopefully increase sales or you resist and move down that "agents card list"

There is no doubt that on line sales of food is racing ahead in China and is the future. As a result it should be considered as part of your long term strategy, but maybe not immediately

If you really want to succeed in developing a strong active distribution network in China, contact Anderen TODAY